There is always more than one way to finance a project.
One of the regular readers of this blog is Chris Steel. I admire Chris a lot, for a great many reasons. One of them is that he is treasurer of Attac Jersey, and it takes guts to live in Jersey and say that its tax haven policy is harmful. Another is that he cares about the future of the place with a passion that only a Jerseyman could have - and a great many of the people in, or influencing power in Jersey are just using the place, knowing full well they can go elsewhere if the place ceases to suit their purposes.
It was in that context that he asked me the other day about the work I have done on bond financing of government projects in the UK and overseas for both central, and especially local government, because he thought that this might be appropriate for Jersey. He’s right: it is. Jersey has an absurd policy of still failing to recognise the difference between revenue and capital spending in its management of its government finances. The result is, of course, that its decision making is completely blown apart as a result of an arbitrarily and entirely inappropriately self imposed desire to balance the books each year (which it fails to do, none the less).
If Jersey were willing to borrow to finance capital costs there are three immediate problems it is facing that could be solved:
Each can generate an income stream to support a bond. The release of the obligation on the current account to pay for this work would let it be used for more pressing needs, like supporting the poor of Jersey, who get a poor deal (as one would expect) in a place that likes to boast about its high standard of living. But Jersey refuses to consider this option. So, unfortunately, does the UK government who are still not letting devolved financial decision making powers allow local authorities to borrow on the open market.
- financing development of the airport;
- refinancing the post office;
- regenerating its social housing.
The result is that necessary market pressure is not exercised in these sectors and their capacity to appraise capital sending in any meaningful way has been virtually destroyed. No wonder so much state and local government is in a mess. There are occasions when accountability to the market can create all the reform that is required without changing ownership itself, and this is one of them.
All of this is explained in a publication I did last year for the New Economics Foundation from the left of centre and Policy Exchange from the right of centre (which is, supposedly, David Cameron’s favourite think tank, not that he’s called me yet, even if his Tax Reform Commission has).
The report, called Paying for Local Investment: New Finance Mechanisms for Local Government is available for download from this site.
And I’d stress - those who ignore bond and other forms of financing of government projects ignore a vital component of the tax equation. We have done so for far too long in the UK. This issue does need debate. I’ll explore it in more depth over the next few weeks.
Richard Murphy’s Blog